Prosperity Watch Issue 17

Workers play a keystone role in North Carolina’s economy, as both producers and consumers of goods and services. Improvements in the well-being of workers and their families are requisite for a strong economic recovery. Unfortunately, North Carolina working families lost financial ground and experienced diminished opportunities through the “lost” decade of the 2000s. Detailed in the new State of Working North Carolina report, this ten-year period of stagnation—and the Great Recession which capped it—resulted in falling wages for many workers, persistently high unemployment, and growing poverty and inequality. Despite the daunting nature of these challenges, the new report—along with a related blog series—outlines a number of policy options available to state officials that can contribute both to recovering from the lost decade and securing a more equitable and prosperous future.

Over the last decade, North Carolina’s economy experienced an accelerated transition away from high-wage industries like manufacturing towards low-wage industries like accommodations and food services. During the ten years between 2001 and 2011, the state shed almost 380,000 jobs, almost 75% of which were concentrated in high-wage industries paying above the Living Income Standard ($23.47), a market-based measure of how much a working family of four must earn in order to meet basic expenses. For example, the state’s manufacturing sector—which pays $25.30 an hour—shrank by more than a third, accounting for 72% of the state’s total job losses, and the state’s information sector (paying $30.70 an hour) accounted for another 4% from 2001 to 2011. These industries historically provided a path into sustainable middle class prosperity for many North Carolinians, and their decline has presented the critical policy challenge of replacing these higher-wage jobs with new quality jobs in growing or stable industries.

Unfortunately, we’re seeing the opposite trend. At the same time as high-wage industries have declined, low-wage industries have been booming. In the ten years since 2001, North Carolina saw almost 390,000 in employment growth, but these job gains were almost entirely concentrated in industries paying lower than the LIS—and in some cases significantly lower. Specifically, more than 83% of the state’s job growth has occurred in these lower-wage industries. These industries cover a range of wages, from the moderately-low Administrative and Waste Services, which pays $14.55 an hour and accounts for 10% of the state’s job growth, to the extremely-low Accommodations & Food Services Industry, which accounts for 15% of the state’s job creation and pays just $7.15 an hour.

Only four growing industries pay above the LIS—Professional & Technical Services ($32.20 an hour), Wholesale Trade ($29.43 per hour), Finance & Insurance ($36.10 an hour), and Management of Companies and Enterprises ($42.68 an hour)—but these industries together only account for 18% of the state’s total job growth during the 2000s. The remaining 82% of North Carolina’s employment growth occurred in those industries paying below the LIS, reinforcing the trend of high-wage job losses being replaced by low-wage job growth.

Last week the Census Bureau released data from the Current Population Survey which was in the field in 2011 and tracks a number of key measures of economic well-being including poverty and household income. One of the important pieces of the analysis that is possible through this survey is to measure the impact of our investments in government programs aimed at fighting poverty. The data show that these programs are keeping millions of Americans out of poverty.

Unemployment insurance and social security, both captured in the Census Bureau measure, kept 2.3 million and 21.4 million out of poverty. Unemployment insurance benefits provide workers laid off through no fault of their own with a modest financial support so that they can continue their job search, make ends meet and minimize the long-term financial distress from a period of unemployment. Social security is best-known as a tool to provide retirement security by providing financial support to the elderly but it also helps widows and children. These programs, established in the Great Depression, as evidenced by the data released last week have been effective at addressing the hardship brought on by the Great Recession.

And other programs that are not officially counted in the poverty measure also lifted people out of poverty. The Earned Income Tax Credit and SNAP, formerly known as food stamps, if included in the official measure would reduce the number of people in poverty by 5.7 and 3.9 million people. These non-cash benefits were established in the 1970s and have grown in importance as a support to families’ in the last half of the decade. And as the latest data demonstrate, their importance in the Great Recession has been significant.

On Thursday, the US Census Bureau will release data from the American Community Survey on state-level poverty, income and health insurance.

During the 2000s, the North Carolina economy experienced unusually short business cycles that produced historically unprecedented changes in the poverty rate. For the first time ever, the poverty rate during one recession failed to recover to pre-downturn levels before the start of the next recession.

From 2001-2010, both North Carolina and the nation as a whole experienced two recessions, one lasting from March to November 2001 and the Great Recession lasting from December 2007 to June 2009. The formal recovery period following the 2001 recession marked the first time on record that poverty was higher by the end of the recovery than at the beginning (see the chart below). Even more troubling, poverty rates continued to rise through the Great Recession and into the current (and very sluggish) recovery.

Similar to the economic recovery from the 2001 recession, new data released last week by the Census Bureau show that the slow recovery that started in mid-2009 has failed to make progress against poverty. In 2011, North Carolina’s poverty rate stood at 17.9 percent, 3.6 percentage points above the rate in 2007. Throughout the two recessions and economic recoveries, the poverty rate in North Carolina increased in 7 out of the past 11 years.

North Carolina’s jobs deficit continues to hover over a half million jobs, meaning that many residents are without the employment necessary to support themselves and avoid poverty. And with unemployment predicted to remain high over the next several years, North Carolinians may be facing another decade of persistently high poverty levels.

Policies that rebuild the state’s economy must not just contend with the aftermath of the Great Recession, but should address the longer-term trends—the growth of low-wage work, for example—that have created an economy characterized by persistent and growing poverty and a struggling middle-class. An economy that works for all of us will be more stable and grow stronger so it is important for policymakers to continue to invest in policies that bolster economic security and spur broadly shared economic growth for all North Carolinians.